Amazon’s acquisition of online pharmacy PillPack spooks retail drugstores

After months of speculation about when Amazon would officially enter the drug distribution market, the online retail giant offered a definitive answer on Thursday, announcing the acquisition of the online pharmacy PillPack.

The full-service pharmacy offers presorted packaging and home delivery and provides Amazon with a nationwide distribution network. PillPack holds mail order pharmacy licenses in all 50 states.

The financial terms of the deal were not disclosed. The companies expect it to finalize the transaction in the second half of 2018.

“PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology,” Jeff Wilke, Amazon CEO Worldwide Consumer, said in a statement. “PillPack is meaningfully improving its customers’ lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier. We’re excited to see what we can do together on behalf of customers over time.”

The acquisition is a shot at the traditional drug supply chain, and shares of Walgreens, CVS and Rite Aid tanked on Thursday morning. Walgreens Boots Alliance was down nearly 7% at the open, CVS dropped more than 9% and Rite Aid was down more than 11%. Shares of the pharmacy benefits manager Express Scripts dropped 3%.

“It is a declaration of intent from Amazon … but the pharmacy world is much more complex than just delivering certain pills or packages,” Walgreens Boots Alliance CEO Stefano Pessina said during a scheduled quarterly earnings call on Thursday morning, adding that the physical pharmacy remains “very, very important.”

But some experts believe the acquisition could go well beyond an online supply chain.

"There are many potential derivative implications and opportunities from this acquisition," Ed Francis, senior director of the life sciences practice at West Monroe told FierceHealthcare. "One is in line with Amazon’s initial food delivery platform leading to the Whole Foods acquisition: This could be the harbinger of Amazon getting into the pharmacy storefront and rapid clinic business."

Others highlighted the possibility of integrating the service with other technology, like Alexa or telemedicine. 

"With Amazon + PillPack this eliminates the need to stand in line at the pharmacy which may help overcome past barriers, especially if that patient has issues with mobility or transportation," said Forrester Analyst Arielle Trzcinski. "Amazon will know if the patient didn’t refill their prescription and could potentially reach out via Alexa to refill their prescription."

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PillPack co-founders Elliot Cohen and TJ Parker founded the company in 2013 after winning the MIT Hacking Medicine Hackathon. The company quickly gained notoriety, landing on Forbes’ list of 25 “Next Billion-Dollar Startups” last year. The company has raised more than $118 million in venture funding.

"This will disrupt the way consumers pick up their medications and has serious implications for brick and mortar retail pharmacies," Trzcinski said. 

Amazon’s acquisition comes months after a partnership with JPMorgan and Berkshire Hathaway aimed at lowering healthcare costs. Last week, the companies appointed renowned author and surgeon Atul Gawande, M.D., to lead that effort.